GTU vs. Perth Mint

Discussion of the Gold portion of the Permanent Portfolio

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Indices
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GTU vs. Perth Mint

Post by Indices » Sun Apr 25, 2010 11:49 pm

Which is better? Pros and cons of each?
rickb
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Re: GTU vs. Perth Mint

Post by rickb » Mon Apr 26, 2010 1:32 am

I don't know much about Perth (maybe someone else can comment).

GTU is a Canadian trust available as a closed end fund run by the same folks who run CEF (which was founded in 1961).  CEF is a 60/40 gold/silver mix while GTU is strictly gold.  Since these are closed end funds, the current price might be more or less than the net asset value per share.  There's typically a premium to NAV - current premium is available on the fund's website at http://www.gold-trust.com/asset_value.htm.

The way the funds work is they invest in bullion.  If the premium creeps up fairly high, they create a batch of new shares which they sell to private investors at a "non-dilutive" price that's higher than the cost of bullion per share but less than the current premium.  These events bring in more cash than is required to buy the appropriate amount of bullion - they keep the rest to pay the ongoing operating costs of the trust.  When these events close the current premium typically suddenly drops, and then starts to creep up again - so just after one of these events occurs is usually the best time to buy.

The bullion is stored in vaults in Canada.  It is never loaned or otherwise encumbered by any third party, and audited twice yearly.

For US citizens, GTU is classified as a Passive Foreign Investment Company, meaning you have to file a Form 8621 with your taxes each year.  Unlike bullion and bullion ETFs like GLD which are subject to 28% capital gains tax, GTU is (currently) subject to only the 15% capital gains tax.

PROs:
  • Favorable (US) tax treatment
  • Nearly 50 year history
  • Bullion stored in segregated vaults
  • Reasonable expense ratio 0.33%
  • Buy and sell like stock
CONs:
  • Premium to NAV varies - can and does drop suddenly
  • Since the premium varies there are good and bad times to buy and sell
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craigr
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Re: GTU vs. Perth Mint

Post by craigr » Mon Apr 26, 2010 1:43 am

Nice write-up, Rick.
rickb wrote: CONs:
  • Premium to NAV varies - can and does drop suddenly
  • Since the premium varies there are good and bad times to buy and sell
Have you noticed anything to indicate to you when it is a good time to buy and sell into the fund?
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Re: GTU vs. Perth Mint

Post by rickb » Mon Apr 26, 2010 10:05 am

The time to buy GTU is when the premium is down, which happens due to normal market forces and also right after additional shares are created (if you look at the news history, the last time this happened was May 12, 2009).  One way to look at it is the premium (more or less) corresponds to the markup you pay (or receive) when you buy (or sell) physical gold bullion.  The premium is currently 8.3%, so buying gold coins at less than about $100 over spot is theoretically a better deal (you get more gold for your money).  The premium history is available at http://www.cefconnect.com (free registration required) - it's averaged about 8% over the last 5 years.  As long as you sell when the premium is equal or greater than when you bought it's basically a wash.
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Re: GTU vs. Perth Mint

Post by Indices » Mon Apr 26, 2010 12:57 pm

From what I can tell about the Perth Mint the pros and cons are as follows:

Pros

Is fully backed by the Australian government (in fact you are dealing with the Aussie government, not a private entity)
Subject to the 15% capital gains tax, not 28% collectibles tax

Cons
Trades at a premium relative to NAV
Traded on Australian index rather than NYSE (fees associated with that)
Your gold is far away (if you live in US or Europe)
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Re: GTU vs. Perth Mint

Post by fnord123 » Mon Apr 26, 2010 12:58 pm

Note that in making premium calculations on gold coins that one may want to use the price one could get on the coins rather than spot price.  For instance, at one company (Apmex.com) they sell gold eagle 1oz coins @ $1213 currently, and buy them @ $1177.  So that is a $36 spread, which is only 3%.  
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